FW: RHB FIC Credit Market Update - 12/6/14

12 June 2014

Credit Market Update

APAC Credits Range Bound Seeking for Direction; Short-term And Perpetual Lead SGD Market; MYR Focused on Financial Names

REGIONAL                      

¨   Credits seek for direction amid rangebound trades. Spread performance was mixed yesterday as JACI IG spreads remained broadly unchanged (+0.7bp to 167.6bps) versus the JACI HY spreads which continued its narrowing streak (-3bps to 473.4bps). The HY space may have attracted investors seeking for yields amid higher rates environment. In the HK/China space, ICBCAS ’17 traded c.1bp tighter to (2.338%) while CNOOC ’24 traded 10bps wider (4.03%). In the Singapore USD space, trades movements appear minimal amid light trades; STSP’17 traded 1bp wider (1.43%) while OCBCSP similarly inched 1bp wider (3.86%). UST yields were marginally tighter yesterday by 0-1bps while weaker demand on the 3y notes auction led to the highest yield seen since May-11. We expect the market to trade broadly rangebound while seeking for further impetus, following easing from ECB in contrary to stronger economic data in US.

¨   We noted that the USD primary front is flooded with energy names from India, Thailand and Korea. Greenko Group Plc (NR), which builds clean-energy projects in India, has hired banks for a USD-denominated bond offering of potentially up to USD400m. Meanwhile, Thai O&G player PTT Exploration and Production (Baa3/BBB-) issued a subordinated USD1bn 4.875% PNC5 at par (midswaps+310.1bps), c.12.5bps inside the initial price guidance of 5% area. From Korea, GS Caltex (Baa3/BBB-) printed 5y USD400m 3.0% bonds at T+135bps, versus initial price guidance of 160bps area.

    

¨   SGD market seen buying into short-ended paper and perpetuals. Yesterday’s swap curve steepened with the 10y widening by 3.4bps (to 2.64%) while the 2y broadened by a lesser 0.7bps (to 0.61%). Meanwhile, demand from PB’s were seen in yielding perpetual papers such as HYFSP PC17 (-c.1.5bps to 7.2%), SPOST PC22 (-c.0.8bps to 5.3%) and GENSSP PC17 (-c.0.4bps to 5.75%). Activity was also mainly seen in the short-end, led by foreign property players like YLLGSP 7/14 and CENCHI 4/16 which narrowed about 14bps while local players like CITSP 10/14 tightened by c.9bps. The Singaporean government announced yesterday that the 2H2014 land released for residential homes would accommodate 15% less homes than the 1H2014 land sales. We opine that this will continue to put upward pressure on land acquisition prices for Singaporean developers, and hence their profit margins.        

MALAYSIA

¨   MYR PDS fueled by financial names. Yesterday we continue to see minimal movements on yield with total activities were quiet at MYR237m (previous: MYR328m), ahead of MYR3bn 7- year GII GL 3/21 reopening auction scheduled today. Heavily traded were some financial names such as HLB 6/24c19 oldstyle T2 and CIMB Group 4/16 both tighten by 1bp to 4.82% (since 4-June) and 4.08% (since 3-June) on MYR40m transactions, respectively; as well as AMMB Holdings 8/14 senior notes widen by 4bps since 24-Apr to close at 3.70% on MYR20m activities. We also saw AA3-rated Eversendai 3/18 on MYR21m trading closed at 4.89% (+2bps since 28-May) after RAM put it on negative outlook.

                                                                     

TRADE IDEA: USD

Bond	New subordinated PTT Exploration and Production PCL (PTTEPT) 4.875% PC19 (Baa3/BBB-) (Price: 100.70; Yield: 4.70%)
Comparable(s)	PTTEPT 3.707% 9/18 (Baa1/BBB+) (Price: 104; Yield: 2.69%) PTTEPT 5.692% 4/21 (Baa1/BBB+) (Price: 110; Yield: 3.87%) SINOCH 5% PC18 (Baa2/BBB) (Price: 103; Yield: 4.10%)
Relative Value	The new PTTEPT PC19 appears fair at c.138-183bps wider than its existing higher-rated bullet bonds after adjusting for duration differentials. Within the O&G industry, it appears c.20bps wide (duration-adjusted) to peer SINOCH PNC18, which is modestly tight given the one-notch rating differential. Overall, quoted at 4.70% in the secondary market, we believe PTTEPT PC19 is fairly priced although we noted the limited supply from Thai corporates in the Asian USD space, which could help provide support to the bond.
Fundamentals	PTTEPT has an ambitious target plan to increase its production rate from 292,000 BOE/day to 600,000 BOE/day in 2020 by increasing its capex. Financial-wise, it shows moderate leverage and liquidity as at Mar-14 of 0.8x total debt/EBITDA (FY12: 0.75x) and 0.9x cash ratio  (FY12: 0.97x).